Geoscience Reference
In-Depth Information
2) To appease those who challenged the system in the first place, and to
ensure that the FA system does not alter the ranking in terms of financial
capacity, the reform introduced several provisions to limit the amount
of interregional redistribution. First, to improve the consequences of the
new compensation mechanism for the rich l ander and provide a higher
incentive to increase tax revenues, rich states are allowed to set aside for
themselves 12% of their revenue surplus, that is, 12% of the amount
of revenues collected above the average (Finanzministerium Niedersach-
sen). Second, the reform adjusted the compensation brackets.
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Finally,
to limit the payments of the donor states, the average compensation pay-
ments from the net contributors to the system are limited to 72.5%of
their surplus revenues. As an example of the implications of these limi-
tations, relative to the status quo, Bavaria saves about 200 million euros
on a yearly basis due to the new laws (Finanzministerium Bayern).
3) Significant adjustments also took place through the revised computation
of each land's financial capacity. Contrary to the previous system, 64%
of the revenues coming from municipal taxes in a land are now included.
The federation wanted 100% of municipal taxes included but gave up
this demand in the bargain. Paradoxically, due to the new accounting of
municipal taxes the richer l ander will pay even more because they tend to
include the wealthier municipalities (Finanzministerium Niedersachsen).
4) Finally, to meet the Constitutional Court's request, the reform intro-
duced a dispersion weight intended to benefit those areas with sparse
and heavily spread-out populations (Mecklenburg-Western Pomerania
1.05, Brandenburg 1.03, Saxony-Anhalt 1.02). Meanwhile, the three
city-states (Bremen, Berlin, and Hamburg) retained a weight of 1.35
(Finanzministerium Baden-Wurttemberg).
In conclusion, it took a decade after Reunification and a Constitutional Court
ruling to create the conditions for a reform that aimed at containing excessive
redistribution from wealthier to poorer l ander. However, note that these agree-
ments, do not imply a reduction in the amount of redistribution towards the
East. They simply entail a shift of part of the cost from net contributing l ander
to the federal government. On the whole, though, and despite the changing
between 95%and60% of the remaining gap is covered. The transfers received decrease with
the amount of revenue generated by each state (Finanzministerium Baden-Wurttemberg). For
the year 2007, these transfers amounted to 10%ofthelanders' share of the VAT.
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Those l ander below 80% of the average financial capacity will be compensated such that 75%
of the gap is covered. If the revenues they collect fall between 80%and93% below the mean,
they will be compensated according to a scale between 75%and70%. The scale decreases
continuously to 44% of the gap for those l ander between 93%and100% of the average. In
turn, l ander above the mean from 100%to107%will pay from 44%to70% of their surpluses,
again in a scale of continuous increase. Those above the mean from 107%to120% will pay
from 70%to75% of their surpluses. No land will can be requested to pay more than 75%of
its surplus (Finanzministerium Baden-Wurttemberg).
